Aramco third quarter profit slides on lower oil prices

The world's largest oil exporter says it will pay $18.75bn in third quarter dividends, similar to the amount paid in the second quarter

Oil tanks at Saudi Aramco's Ras Tanura oil refinery in Saudi Arabia. Reuters

Saudi Aramco, the world's largest oil exporter, said third quarter profit fell 44.6 per cent annually, due to lower crude oil prices and volumes sold, as well as weaker refining and chemicals margins.

Net income for the three months to the end of September fell to 44.21 billion riyals ($11.79bn), Aramco said in a  statement to the Tadawul exchange, where its shares trade.

Aramco was expected to record a quarterly net profit of 44.6bn riyals, according to the mean estimate from three analysts provided by Refinitiv.

Despite headwinds in global energy markets, Aramco said it will pay $18.75bn in third quarter dividends, similar to the amount paid to shareholders in the second quarter of this year.

“We saw early signs of a recovery in the third quarter due to improved economic activity, despite the headwinds facing global energy markets," Aramco president and chief executive, Amin Nasser, said. "Meanwhile, we maintained our commitment to shareholder value by declaring a dividend."

Oil markets have been fluid in the wake of a global economic slowdown induced by the Covid-19 pandemic that has disrupted global supply chains, trade and the travel industry. Oil prices are trading near a five-month low.

"We have not seen any coronavirus restrictive measures in the US ... so, the biggest threat to the oil price is still out there while supply is on the rise," said Naeem Aslam, chief market analyst at Avatrade. "There will be no surprise if we see the oil price moving all the way near the $30 [per barrel] mark."

Brent, the international benchmark for crude, was trading higher on Tuesday, up 2.1 per cent at 12:43pm UAE time at $39.79 per barrel. WTI, the key gauge for US oil, was 2.47 per cent higher at $37.72.

Recent data and the International Monetary Fund's latest World Economic Outlook last month point to an uneven economic recovery as some countries rebound, while others enter into lockdowns in the face of rising Covid-19 infections stoking concerns about oil demand.

Aramco's net income in the first nine months of the year fell 48.6 per cent on the same period last year to 131.3bn riyals.

Saudi Aramco's results reflect an increasingly "tough energy market scenario", Vijay Valecha, chief investment officer at Century Financial in Dubai, said.

"The company [however] maintained its commitment to its largest shareholder – Saudi Government – by declaring a dividend". This will "come in handy" for the kingdom's government during the pandemic-induced economic slowdown, he added.

Saudi Arabia's economy is forecast to shrink 5.4 per cent this year and then rebound 3.1 per cent in 2021, according to the IMF. The kingdom's non-oil private sector economy rose to its highest level of activity in eight months in October, boosted by a rise in output.

The seasonally-adjusted IHS Markit Saudi Arabia Purchasing Managers' Index rose to 51 from 50.7 in September. A reading above the neutral 50 level indicates economic expansion, while a reading below points to a contraction.

Aramco said it continues to demonstrate its "strength and resilience across economic cycles" despite an almost 25 per cent drop in total sales to 200.1bn riyals during the third quarter of this year.

Capital expenditure for the third quarter were 23.93bn riyals as the company continues to implement optimisation and efficiency programmes.

“We continue to adopt a disciplined and flexible approach to capital allocation in the face of market volatility," Mr Nasser said. "We are confident in Aramco’s ability to manage through these challenging times and deliver on our objectives."

The IEA expects the pandemic to usher in the slowest decade of energy demand in a century. Opec, however, expects oil demand to rebound in 2021 on the back of growing consumer confidence in the global economy, which the exporters’ group expects to grow by 4.7 per cent next year.

Aramco said it is making progress on multiple fronts and its integration with Saudi Basic Industries Corporation, which it acquired for $69.1bn, is proceeding as planned.

"Our resilience is supported by our unique scale, low upstream carbon intensity and low production costs," Mr Nasser said. "As the global economic and social landscape evolves, these strengths ... mean we are well positioned to support the energy needs of the global economic recovery."